The Policy Address of this year maps out long term plans in many areas. They attempt to lay down our future paths in finance, economy, housing and helping the poor. In contrast, there are not many measures that would produce instant results. Thus, the Address is attracting criticisms like “empty” and “unhelpful”. However, it has always been my view that the Policy Address should draw blueprints for Hong Kong with vision and far sight. This is its primary task. From this perspective, the Policy Address has done its job and also reversed short-sightedness of the Government in recent years. Frankly speaking, the Address should always be appraised on realization of plans. Ultimately, what really matters is capability of the Government to deliver promises.
I would start with the Financial Services Development Council (FSDC). It is controversial at launch, with criticisms like too many members from Chinese enterprises, undefined power and duties, etc. Actually, they arise from poor acceptance of the new body. The Government should spend more efforts to explain in public. Unfortunately, the public is paying too much attention to these controversies and misses the crucial issue. Hong Kong really needs such a body to help develops finance services. Thus, barriers might be pulled down. Opportunities might be captured. Jobs might be created. Public revenue might be increased eventually.
Asian economies today, including our major rivals, are actively promoting and planning for economic development. Hong Kong is perhaps, the only exception not having a dedicated body to pursue financial services. We have already missed many opportunities. The economy might have suffered impasse if support from the Mainland had not been available. Therefore, Hong Kong needs FSDC to advise the Government on offering good environment for investments as well as helping the industry break new grounds and overcome imminent problems.
On the comment of too many members from Chinese enterprises, it is ignorant of market reality. If one looks at current financial development, one would realize that Hong Kong needs their expertise. Hong Kong’s priority today is to become the largest offshore renminbi center of the world. Thus, we badly need expertise in Chinese financial framework to help build an effective local system. On the other hand, CEPA provides for entry to financial services in the Mainland but there are too many hurdles in practice. Take insurance as an illustration. Entry is at a standstill. Expert advices from the Chinese side are badly needed to help find practical solutions. Actually, financial services in Hong Kong are integrating with the Mainland, and involvement of Chinese financial expertise for further development is inevitable. It is common sense, isn’t it?
Incidentally, I would like to caution that Hong Kong is spending efforts in financial supervision rather than development in recent years. Again, take insurance that I am familiar with as an illustration. Since the Lehman Brothers incident, the Government has been increasingly tough on financial institutions, imposing new regulations from time to time. Some are even extreme measures. People are wondering if regulators are more concerned over potential responsibility than practicality of new measures and requirements. They are not only unhelpful to customer protection but also obstructive to normal course of business. When regulation and development lose balance, Hong Kong would only be a loser.
When the Government focuses on regulation, business development is often overlooked. It explains the stalemate of the financial industry in recent years. Apart from helping local underwriters to enter the Mainland, I wish FSDC would also look into development of insurance for catastrophic events, captive and re-insurance center. They would help promote diversifications in the insurance industry. I would suggest the study to cover means of raising productivity, such as development of headquarters economy and tax concessions, etc.
The proposed independent Insurance Authority is the primary concern of the industry. The Government is tabling a Bill to the Legislative Council during the current session. Since an independence regulator would have far reaching implications on the industry, a second round of consultation has been concluded. Both intermediaries and underwriters have made substantial submissions, particularly on industry participation in the new Authority, on legal relation between intermediaries and underwriters, and on tougher penalties for intermediaries, etc. Taking account of these views, the Bill may need considerable revisions in drafting. As the new law would affect long term development of the industry at large, we expect the Government to settle these outstanding concerns before the Bill is tabled.
On the proposed policy-holders protection fund, the Government will table a bill in the next session. Although the law is being drafted, the industry still has several concerns. Should small to medium enterprises be covered? Should policy-holders under liquidation still have valid claims? If these issues are not resolved at the drafting stage, they might drain the fund leaving taxpayers to foot the deficit.
Turning to retirement protection, the Government is reviewing the power of MPF Authority and also directing it to get ready for full portability within three years. Actually, portability is inevitable and all should be prepared. Studies on central database and “one member, two accounts” are priorities for early realization of full portability. Market competition would help bring down scheme charges. A comparative study on administration of provident funds finds that Hong Kong is higher in scheme charges than places where retirement plans are more mature mainly because of higher administrative charges. Other fees are comparable. Thus, simplified and automated administration is the key to bringing down scheme charges. Apart from portability, MPFA should also push for administrative reforms. With parallel measures, improvements are forthcoming.
On expanding the power of MPFA, the Government is studying to include more factors like fund type, charges, returns, etc in the checklist for accreditation of schemes and eligible funds. That said I would oppose over-supervision. On tariff controls, I have repeatedly stressed that fees and charges are complex market matters. Administrative orders would not bring down charges. If more stringent regulations were introduced, service providers might be compelled to reduce investments in compliance for survival. Members would only suffer from poorer services and lower returns. As explained earlier, there is room for improving scheme charges. We should start with automated administration and free portability, supplemented by other practical measures. We should not try to win applause with one-off measures that are not addressing the root cause. If we did, we are just fooling ourselves.